635 B.R. 581
Bankr. D. Colo.2022Background:
- Debtor Saratoga and North Creek Railway, LLC is a federal common carrier owning a 100‑year easement (the “Saratoga Easement”) with ~29.7 miles of track terminating at the Tahawus Mine; the easement runs through Adirondack Park and was conveyed by a 1962 stipulated judgment.
- Debtor filed Chapter 11 and proposed a Second Amended Plan built around an APA stalking‑horse sale to Revolution Rail for $700,000, with bid procedures requiring any competing bidder to assume the common‑carrier obligation to preserve future rail service; sale subject to Surface Transportation Board (STB) approval or exemption.
- New York (State, NYDEC, and NY Olympic Regional Development Authority) objected, pressing that the plan improperly bars rails‑to‑trails bidders (OSI) and violates §§ 1129(a)(1), (3), and (7); OSI was later barred from participating for lack of standing.
- Revolution Rail’s premature STB exemption filing was denied procedurally; STB abandonment proceedings remain pending and unresolved.
- Creditors overwhelmingly voted to accept the plan (9 of 10 unsecured voters representing 99.95% by dollars); the bankruptcy court held an evidentiary confirmation hearing and admitted evidence for both sides.
- Court concluded the Debtor satisfied all confirmation requirements (including cramdown), found the sale process was a sound exercise of business judgment, and confirmed the Second Amended Plan.
Issues:
| Issue | Plaintiff's Argument (New York) | Defendant's Argument (Debtor) | Held |
|---|---|---|---|
| Standing / right to be heard | State/NYDEC joined NY Olympic Authority in objection; State/DEC claim interest as landowner/manager and seek to participate | Debtor argued State/DEC lack pecuniary interest; only NY Olympic Authority is a creditor with standing; OSI lacks party‑in‑interest status | Court questioned State/DEC standing but proceeded because NY Olympic Authority (a creditor) clearly had standing; OSI was struck for lack of standing; State/DEC participation addressed but not dispositive |
| §1129(a)(1) — code compliance / public‑interest (§1165) | Plan improperly referenced §1165 and sought to impose a public‑interest test inappropriate in non‑railroad (non‑Subchapter IV) case | Debtor removed §1165 references and rephrased bid criteria to require assuming common‑carrier obligation; argued this is a business‑judgment qualification to secure STB approval | Court found §1165 inapplicable but deviation was cured in Second Amended Plan; requiring bidders to assume common‑carrier obligations is a permissible business judgment and §1129(a)(1) satisfied |
| §1129(a)(3) — good faith / feasibility (STB risk) | Plan not feasible because STB already denied Revolution Rail’s exemption and future STB approval is uncertain; auction after confirmation makes feasibility unknowable | Debtor marshaled marketing evidence, stalking‑horse APA, Revolution Rail’s proffers to assume common‑carrier obligations and seek STB approval; structured sale to maximize chance of STB approval; feasibility requires reasonable prospect, not a guarantee | Court held Debtor met burden: evidence showed reasonable likelihood of STB approval or exemption and a realistic sale process; plan proposed in good faith and is feasible |
| §1129(a)(7) — best interests of creditors / liquidation comparison | OSI offered higher price and plan limits bidders; Chapter 11 administration costs exceed Chapter 7; plan may not yield as much as liquidation | Debtor emphasized stalking‑horse + auction structure could yield higher bids, liquidation estimate (~$405k–$585k) is lower than stalking‑horse price and plan administrator will not take compensation | Court held plan satisfies best‑interests test: auction could increase price, Chapter 7 likely netted less, Plan Administrator will not take compensation; §1129(a)(7) satisfied |
Key Cases Cited
- Search Mkt. Direct, Inc. v. Jubber (In re Paige), 685 F.3d 1160 (10th Cir. 2012) (plan proponent bears preponderance burden; good‑faith/feasibility standard)
- Dill Oil Co., LLC v. Stephens (In re Stephens), 704 F.3d 1279 (10th Cir. 2013) (§1129 acceptance/consent framework)
- United Student Aid Funds, Inc. v. Espinosa, 559 U.S. 260 (2010) (court’s independent duty to ensure plan compliance)
- FB Acquisition Prop. I, LLC v. Gentry (In re Gentry), 807 F.3d 1222 (10th Cir. 2015) (feasibility requires reasonable assurance, not guarantee)
- Travelers Ins. Co. v. Pikes Peak Water Co. (In re Pikes Peak Water Co.), 779 F.2d 1456 (10th Cir. 1985) (good‑faith/feasibility analysis)
- Rumsey Land Co., LLC v. Resource Land Holdings, LLC, 944 F.3d 1259 (10th Cir. 2019) (stalking‑horse bid explanation)
- Connolly v. Morreale (In re Morreale), 959 F.3d 1002 (10th Cir. 2020) (trustee compensation principles under §326)